Out of Step: A Proposed Four Factor Test to Reconcile The Tango Between Bankruptcy and Government Contract Jurisdiction by David Schneider*

Transcription

1 57 Out of Step: A Proposed Four Factor Test to Reconcile The Tango Between Bankruptcy and Government Contract Jurisdiction by David Schneider* I. Introduction Bankruptcy jurisdiction is in disarray. Congress has given bankruptcy judges the authority to hear and enter final judgments in all core proceedings arising under title 11, or arising in a case under title In 28 U.S.C. 157(b)(2), Congress provided a list of sixteen examples of what constitutes a core proceeding. 2 This past year, the Supreme Court, in Stern v. Marshall, found one of these examples unconstitutionally overbroad because it allowed bankruptcy courts, which are Article I courts, to adjudicate a common law tort claim in 3, 4, 5 violation of Article III of the Constitution. This provision stated that all counterclaims by the estate against persons filing claims against the estate were core and a bankruptcy court has jurisdiction over the counterclaim. 6 In Stern, the counterclaim by the estate was for tortious interference. 7 The Supreme Court held that this claim is rooted in common law, and not the Bankruptcy Code. 8 While the Bankruptcy Code gives bankruptcy courts statutory jurisdiction to hear the claim, that jurisdiction is unconstitutional because the claim must be heard by the Article III judiciary. 9 The impact of Stern is unclear. One of the topics of this year s national Bankruptcy Moot Court competition is whether this case broadly opened the door to redefine what is core, or should be narrowly applied to the specific facts of Stern. 10 II. Analysis Bankruptcy jurisdiction has another layer of complexity when the debtor is a federal contractor and one of the creditors is the United States. 11 Before Stern, the Supreme Court held that bankruptcy courts could not enter final judgments on claims for breaches of contracts based on state common law because such claims were outside their constitutional jurisdiction. 12 Because federal contracts are not based in state common law, the jurisdiction of bankruptcy courts over federal contract claims is unclear. The primary government contract dispute fora, the Boards of Contract Appeals and the United States Court of Federal Claims, are given their jurisdiction under the Contract Disputes 13, 14 Act and the Tucker Act. Bankruptcy courts are given their jurisdiction over cases arising under Title 11 of the United States Code. 15 When confronted with a claim that combined both a bankruptcy issue and federal contract issue, former 5 th Circuit Senior Judge Goldberg wrote, [g]iven such conflicting mandates, what is a poor circuit judge to do? 16 In answering this question, the Supreme Court removed state common law issues from the jurisdiction of Article I

2 58 bankruptcy courts and gave it to Article III courts. However, if jurisdiction is taken away from a bankruptcy court on a government contract issue, the question arises whether the jurisdiction will be given to the Court of Federal Claims, which is also an Article I court. 17 This analysis must begin with the commonality between the two types of claims, i.e., they are both against the United States. To bring a claim against the United States, a party must demonstrate a waiver of sovereign immunity and a source of substantive law upon which the claimant relies provides an avenue for relief. 18 If a court believes that subject matter jurisdiction may be lacking, the court must raise that issue sua sponte to determine whether it has jurisdiction to adjudicate the matter. 19 Even though a waiver of sovereign immunity may exist, it does not mean that there is a cause of action for damages against the government. 20 The Tucker Act provides only a waiver of sovereign immunity for the claims that fall within the jurisdiction of the Court of Federal Claims, and does not in itself give the Court of Federal Claims subject matter jurisdiction. 21 The Tucker Act does shed light as to where the substantive jurisdiction of the Court of Federal Claims originates. 22 For example, the Court of Federal Claims is given exclusive jurisdiction of monetary claims against the United States for relief in excess of $10,000 that are substantively based on the Constitution, or any Act of Congress or any regulation of an executive department, or upon any express or implied contract with the United States. 23 When passing the Tucker Act, Congress intended the jurisdiction and remedies of the Tucker Act to be exclusive in cases based on government contracts. 24 However, jurisdiction to hear a government contract dispute may not be exclusive to the Court of Federal Claims if there is another statute besides the Tucker Act that independently provides a waiver of sovereign immunity and a provision of subject matter jurisdiction. 25 Waivers of sovereign immunity, if not explicit, must be strictly construed in favor of the United States. 26 Section 106 of the Bankruptcy Code, titled Waiver of sovereign immunity, provides the requisite, albeit limited, waiver of sovereign immunity to bring a claim against the United States Government. 27 Like the Tucker Act, 11 U.S.C. 106 does not itself create a substantive claim for relief, and a claimant must look elsewhere in the Bankruptcy Code to find a substantive claim. 28 This section is comprised of three subsections, each creating a waiver of sovereign immunity. 29 The first subsection provides a list of other sections of the Bankruptcy Code where sovereign immunity is abrogated as to a governmental unit, and a violation of these sections constitutes a substantive claim that can be brought.,30, 31 The second subsection, provides a waiver of sovereign immunity when a governmental unit has filed a proof of claim. 32, 33 The third and final subsection provides the following waiver of sovereign immunity: there shall be offset against a claim or interest of a governmental unit any claim against such governmental unit that is property of the estate. 34, 35 These waivers allow monetary relief in two circumstances. 36 First, compulsory counterclaims to governmental claims [current 106 (b)], and second, permissive counterclaims to governmental claims capped by a setoff limitation

3 59 [current 106(c)]. 37 Congress added these three waivers of sovereign immunity to create a level playing field between sovereign entities and other participants in the bankruptcy court. 38 When the line between a government contract claim and a bankruptcy claim is blurred, the proper jurisdiction for the claim is difficult to ascertain. 39 The Court of Federal Claims and bankruptcy courts are both specialized courts, and their judges possess the requisite specialized knowledge to hear claims within their respective jurisdictions. 40 We have been presented with two inclusive, exclusive, sweeping schemes, both of which the Supreme Court has endorsed. The disputes clause is something that no court can disregard. Bankruptcy courts have jurisdiction exclusive of all other courts. 41 If a bankruptcy court does not have jurisdiction to enter a final decision on a claim, then it may still hear the issue and make a recommendation to the district court. 42 Yet, even a district court might not be able to enter a final judgment on a government contract/bankruptcy hybrid issue because of the Tucker Act s mandate of exclusive jurisdiction of government contract claims in the Court of Federal Claims. 43 While there is no bright-line rule of how to deal with this jurisdictional struggle, the general application appears to be an implicit balancing. 44 We must mediate between [government contracts and bankruptcy claims] in the manner that least impairs their respective goals and purposes. 45 The circuit courts approach this balancing differently and there is not one universal way to reconcile these two jurisdictional mandates. 46 Below are examples of this balancing from the circuits that have dealt with this issue: III. Court of Appeals Cases A. Federal Circuit 47 In Quality Tooling, Inc. v. United States, the U.S. Court of Appeals for the Federal Circuit was presented with a dispute between a contractor, Quality Tooling, and United States Army over a contract for manufacturing parts to a missile system. 48 Unhappy with Quality Tooling s performance, the Army terminated the contract for default on October 11, 1990 and informed the contractor that it owed the government for losses caused by the default. 49 Quality Tooling then brought a claim in the U.S. Court of Federal Claims alleging that the contract had been terminated for convenience, and therefore the government was not entitled to damages. 50 With the contract claim ongoing, the contractor filed for bankruptcy and after several moves and countermoves both the bankruptcy dispute and the contract dispute were brought before the District Court for the Northern District of Alabama. 51 Appreciating that Government contract law is a specialized, even arcane, field, the Federal Circuit held that [i]n many cases, bankruptcy courts should stay their proceedings while the contractual issues are resolved by the Court of Federal Claims, which is accustomed to the intricacies of government contracts. 52 In this case, the Federal Circuit held that a district

4 60 court may hear a bankruptcy/government contract hybrid claim if the interest expressed by the Bankruptcy Act in providing fair and expeditious relief to creditors is greater than the interest expressed by the CDA in resolving government contract claims in familiar, and expert, fora. 53 The Federal Circuit did not balance the jurisdictions in this case, but remanded the case back to the District Court with the instruction to conduct the balancing. 54 B. Second Circuit In Presidential Gardens Associates v. U.S. ex rel. Secretary of Housing and Urban Development, the U.S. Court of Appeals for the Second Circuit acknowledged the need to balance the bankruptcy and government contract concerns, but did not have to balance the jurisdictional questions. 55 In this case, the bankruptcy proceeding was terminated and the government contract claim did not involve the reorganized debtors themselves; therefore, the court determined it did not have to apply the balancing. 56 C. Third Circuit The U.S. Court of Appeals for the Third Circuit, in In re University Medical Center, conducted the jurisdictional balancing and found that the specific hybrid claim should be heard in a bankruptcy court. 57 The debtor in this case, a Medicare provider, claimed that the Department of Health and Human Services ( HHS ) violated the automatic stay put in place by the Bankruptcy Court by withholding payments to setoff a pre-petition debt owed to the agency. 58 A debtor that files for bankruptcy is given an automatic stay to prevent creditors from attempting to collect debts outside of the bankruptcy process. The automatic stay prevents the setoff of any debt owing to the debtor that arose before the commencement of the case under 59, 60 this title against any claim against the debtor. In this case, the parties did not dispute the amount of reimbursement to be paid. Therefore, the issue before the court could be limited to whether a bankruptcy court had jurisdiction to decide whether HHS s withholding violated the automatic stay. 61 The debt arose from an overpayment by HHS to the hospital before the hospital filed for bankruptcy. 62 HHS tried to setoff this debt by withholding payments earned through different a transaction between the parties that occurred after the hospital filed for 63, 64 bankruptcy. Because this second transaction occurred after the debtor filed for bankruptcy, the court held the automatic stay protected the hospital from HHS withholding payments. 65 The court held that because the cause of action was a violation of the automatic stay, the issue should be heard in front of a bankruptcy court. 66 D. Fifth Circuit In Matter of Gary Aircraft Corporation, the U.S. Court of Appeals for the Fifth Circuit conducted the government contract and bankruptcy balancing. However, the issue was filed in

5 61 bankruptcy court in 1976 and, therefore, was governed by the amended Bankruptcy Act of 1898 and not under the current Bankruptcy Reform Act of In this case, Gary Aircraft had entered into a contract with the United States Air Force, and while the contract was being performed the Air Force sent a team to the contractor that imposed stringent property and quality control procedures. 68 These procedures led to missed delivery deadlines and the second contract was terminated for default. 69 Before balancing, the Fifth Circuit cited three cases from the 1940s and 1950s in which the Supreme Court said bankruptcy courts should defer to an administrative tribunal. 70 The Fifth Circuit acknowledged that the primary purpose of a proceeding in bankruptcy is to ensure that all creditors are treated fairly, which makes it absolutely essential that all claims be satisfied in one forum. 71 The court held that under the Bankruptcy Act of 1898, Bankruptcy Courts had only ancillary jurisdiction to liquidate claims; therefore, having all disputes settled by the bankruptcy court is merely an administrative convenience and not vital to the purpose of bankruptcy. 72 In applying the balance, the court said: We need a narrow turf and a legal tightrope walker to determine the validity and magnitude of the contract claims, if any. Assuming there be such, we may then return to bankruptcy turf to see if reorganization is to be found in the grass. 73 The court qualified its opinion by explaining that [c]ertainly the rule we announce today requiring liquidation in the Board of Contract Appeals cannot be used per se to support a finding of undue delay. 74 While Gary Aircraft does not conduct the jurisdictional balance with the current Bankruptcy Code, this case presented several factors that other courts have turned to when presented with this jurisdictional issue. 75 The court based its reasoning on a multi-factored approach, including the ability of bankruptcy court to ultimately determine all claims, the exclusive jurisdiction of the Court of Claims to resolve claims against the government, the lack of undue delay in deferring to the Board of Contract Appeals, the esoteric nature of government procurement law, and the presence of specialized fora designed to resolve procurement disputes. 76 E. Sixth Circuit In In re MacLeod Company, Inc., the U.S. Court of Appeals for the Sixth Circuit, conducted the jurisdictional balance in a dispute between the Defense Construction Supply Center ( DCSC ) and MacLeod Company Incorporated. 77 MacLeod was awarded a contract to construct and deliver thirteen water tank trucks for the United States Air Force. 78 The company received $525,750 in progress payments, but did not deliver the trucks as scheduled. 79 Because of this delay, and learning that MacLeod was going to file for reorganization under Chapter 11 of the Bankruptcy Code, DCSC terminated the contract for default. 80 The United States filed a motion for summary judgment in the bankruptcy court that sought the release of the trucks, and MacLeod filed a counterclaim for the balance of the unpaid value of the contract, $57, The Court began its analysis in reconciling the two statutory provisions of exclusive

6 62 jurisdiction by turning to statutory canons of construction. 82 The Sixth Circuit acknowledged Supreme Court precedents that state when there are two statutes capable of co-existence, it is the duty of the courts, absent a clear intention to the contrary, to regard each as effective. 83 Then, the court turned to the statutory construction that a later enacted statute may limit the scope of an earlier statute, if the two laws conflict. 84 The Contract Dispute Act was enacted on November 1, 1978 and the bankruptcy jurisdiction statute, as amended, took effect on July 10, Under this time-based canon of construction, the Bankruptcy Code should be given precedence since it was passed after the CDA. 86 Next, the court turned to the canon of construction that states a specific statute will not be controlled or nullified by a general one, regardless of priority of enactment. 87 The court reasoned that had Congress wanted a debtor to exhaust administrative remedies in all bankruptcy cases, like the one before the court, then Congress would have said so with an express provision. 88 The Sixth Circuit then looked to the legislative history of the Bankruptcy Code and quoted a Senate Report on the Bankruptcy Reform Act that said: [a] major impetus underlying this reform legislation has been the need to enlarge the jurisdiction of the Bankruptcy Court in order to eliminate the serious delays, expense and duplications associated with the current dichotomy between summary and plenary jurisdiction The court concluded that Congress intention to have bankruptcy claims heard in one forum overrides the Contract Dispute Act s procedural requirements, and that Chapter 11 reorganizations would be at the mercy of lengthy administrative proceedings. 90 The Sixth Circuit reasoned that the breach of contract counterclaim was so straightforward that for the bankruptcy court to defer and wait would cause an unnecessary delay. 91 Citing the Fifth Circuit Gary Aircraft decision for the proposition that deferring a bankruptcy proceeding for a government contract claim should not occur if the deferral causes undue delay, the court held that the bankruptcy court had jurisdiction to decide this dispute. 92 F. Ninth Circuit In McGuire v. United States, the United States Court of Appeals for the Ninth Circuit explicitly disagreed with the Federal Circuit s holding in Quality Tooling, when it applied a balancing analysis between a constitutional takings claim and a bankruptcy claim. 93 The Tucker Act also gives jurisdiction to the United States Court of Federal Claims over constitutional takings claims. 94 The Ninth Circuit held that the Court of Federal Claims had exclusive jurisdiction to try the merits of the takings claim. 95 The bankruptcy court, however, was not without a jurisdictional role because, any money judgment obtained in such an action is the property of the bankruptcy estate because the district court in which the bankruptcy case is commenced obtains exclusive in rem jurisdiction over all of the property in the estate. 96 If the takings claim were brought before the Court of Federal Claims without the approval of the bankruptcy court, the suit would have lacked standing. 97 The court added, although the bankruptcy and district court do not have jurisdiction to hear the merits of the Tucker Act claims, the cause of action still forms part of the bankruptcy estate and the management

7 63 thereof is subject to bankruptcy court jurisdiction. 98 On remand from the Ninth Circuit, the Court of Federal Claims reconciled proceeding with the claims, despite the clear circuit split, for three reasons. 99 First, the Court of Federal Claims explained that the Federal Circuit, in Quality Tooling, described the decision as narrow. 100 Second, the court explained that Federal Circuit s holding was specific to government contracts claims, not taking claims, heard by district courts sitting in bankruptcy. 101 Third, if the court refused to hear the transferred case, then the case would return to the district court and jurisdictional ping-pong would result. 102 IV. Proposed test After studying all the preceding cases, I concluded that the Sixth Circuit s articulation of the balancing test applied by the Fifth Circuit provided the most guidance in navigating this jurisdictional quagmire. Synthesizing this test with the other Circuit Court opinions, I now offer a four factor test to determine whether bankruptcy courts or a district court reviewing a bankruptcy court s recommendation can decide a government contract issue. All four of the following factors must be balanced and no single factor is dispositive. First, the courts should determine the facts and the body of law that gives rise to the cause of action. 103 Second, courts must consider the esoteric nature of procurement law and presence of specialized fora designed to resolve procurement disputes. 104 Third, courts need to take into account a bankruptcy court s exclusive in rem jurisdiction over all of the property of the estate. 105 Fourth, courts must bear in mind the effects on the entire case of delaying a proceeding to allow the different court to decide one issue. 106 Below, I will apply this test to the facts of three of the preceding cases. V. Application of the Test to Court of Appeals Cases A. Federal Circuit In Quality Tooling v. United States, the Government terminated the contract for default and the contractor believed the Government had actually terminated the contract for convenience. 107 This cause of action is created under federal procurement law and does not exist under bankruptcy law; therefore, the first factor says a government contract tribunal should adjudicate the issue. 108 The second factor requires an appreciation of the complexities of the federal procurement system, and the specialized boards and courts created to resolve procurement disputes. 109 The determination of whether a contract was terminated for default or terminated for convenience should be determined by a tribunal specialized in the nuanced differences between the two types of terminations. 110 According to this factor, the bankruptcy court should not adjudicate this claim. The third factor intrinsically favors bankruptcy courts

8 64 hearing the claims. 111 In bankruptcy, all of the debtor s assets are gathered and the bankruptcy court has exclusive jurisdiction over how these assets should be disbursed. 112 Therefore, because the government is seeking damages from the contractor and all of the contractor s assets are now part of the bankruptcy estate, the government is seeking damages from the bankruptcy estate. 113 This factor weighs in favor of the Bankruptcy courts jurisdiction over this claim. Finally, the fourth factor requires addressing the dangers of possible delay to the bankruptcy proceeding. 114 The Bankruptcy Code strives to provide a swift relief for both debtors and creditors. 115 The government contract claim must first be answered to know how much money is in the estate to be divided amongst creditors. 116 As a practical matter, the determination of what type of termination occurred might not take long at all, but every other party to the bankruptcy proceeding must wait until it is determined. 117 Accordingly, this factor is evenly split between the two jurisdictions as more needs to be known about the extent of the delay. Therefore, under this test the bankruptcy court should stay its proceeding until the procurement dispute is resolved. B. Third Circuit In In re University Medical Center, the cause of action was for a violation of the automatic stay put in place by the Bankruptcy Court. The Government violated the stay by withholding Medicare reimbursement payments to setoff a previous debt that were owed from a separate transaction. 119 Because this cause of action is created by bankruptcy law and enforced by bankruptcy courts, the first factor clearly says that bankruptcy and district courts should have jurisdiction over the claim. 120 The second factor, the esoteric nature of procurement law and the specialized nature of contract dispute tribunals, is not as significant in this case because this was purely a question about whether the stay was violated. The amount withheld is not in question. This factor also weighs in favor of bankruptcy and district courts being able to hear and decide the case. The third factor weighs heavily in favor of bankruptcy courts and district courts jurisdiction as well, because stays are put in place to protect debtors and to preserve the estate. Lastly, the delay to the bankrupt estate is a major concern. All of the other creditors are honoring the stay to get their fair share of the bankruptcy estate and should not be forced to wait longer for the government to have this claim answered separately. 122 Just because the creditor is the United States does not mean it should be treated differently. 123 All four of these factors say that a bankruptcy court or district court should be able to hear this claim. This is the same outcome that the Third Circuit held. 124 C. Sixth Circuit In In re MacLeod Company, Incorporated, the cause of action was the Government s termination of the contract for default. 125 In this case, the government paid $525,750 in progress payments, and hence the government wanted the contractor to release the trucks. The contractor wanted $57,000, the unpaid value of the contract. 126 This cause of action stems from government contract law. The Sixth Circuit appreciated the complicated nature of procurement

9 65 law and its specialized tribunals, but felt this issue was straightforward enough for another 127, 128 court to decide. This factor is not as significant here because most courts could determine this issue. 129 Third, the bankruptcy court must identify and protect the assets in the bankruptcy estate. The trucks in dispute are part of the estate and the bankruptcy court has exclusive jurisdiction over these trucks. 130 It follows that this factor also weighs in favor of the bankruptcy courts hearing the claim. The Sixth Circuit stressed that the delay of deferring this issue to a procurement tribunal would cause unjust delay. 131 This is the main factor the court used to decide that bankruptcy or district courts should be able to determine this claim. 132 Both the four factor test and the Sixth Circuit s opinion dictated that this claim should be resolved in a bankruptcy court. 133 VI. Conclusion The Circuit Court decided these cases before the Supreme Court s June 23, 2011 landmark decision in Stern v. Marshall. 134 In Stern, the Supreme Court limited bankruptcy courts jurisdiction by holding that the courts cannot hear counterclaims that are based on state common law. 135 The courts have not addressed the impact of Stern on non-common law counterclaims that stem from other federal statutes. While Congress intent in drafting the current Bankruptcy Code was to give the bankruptcy courts broad jurisdiction, the Supreme Court has limited this broad mandate three separate times: Stern v. Marshall 136 ; Northern Pipeline Construction Company v. Marathon Pipe Line Company 137, and Granfinanciera, S.A. v. Nordberg. 138 However, the Supreme Court has not specifically addressed the intersection of government contract and bankruptcy jurisdiction. While the circuit courts agree that there should to be a balancing of these two jurisdictions, they apply the balancing differently. Using the above four part test provides the same outcome as the circuit court s held in their respective cases. This allows for a uniform and standardized methodology regarding how these cases were decided. Such a methodology is instructive in evaluating future cases. * - David Schneider is a 2012 graduate of Emory University School of Law, where he graduated Order of Barrister. He will be joining the Government Contracts Practice Group of Holland & Knight LLP in the fall. He was a Finalist Award winner at the 2011 Hon. Conrad B. Duberstein Bankruptcy Moot Court Competition. Endnotes 1 - Stern v. Marshall, 131 S. Ct. 2594, 2603 (2011) (quoting 11 U.S.C. 157(b)) (emphasis added) U.S.C. 157(b)(2). 3 - Stern, 131 S. Ct The Supreme court found 28 USC 157(b)(2)(C) to be unconstitutionally overbroad.

10 66 Endnotes (cont d) 5 - Vickie Lynn Marshall, whose estate brought this action as the petition, is better known as the former playboy playmate Anna Nicole Smith U.S.C. 157(b)(2)(C). 7 - Stern,131 S. Ct. at 2595, Id. 9 - Id Information about the annual Hon. Conrad B. Duberstein Bankruptcy Moot Court Competition can found at duberstein _moot_court_competition/20th_annual_duberstein_moot_court_competition.stj 11 - See Matter of Gary Aircraft Corp., 698 F.2d 775 (5th Cir. 1983) N. Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 87 (1982) (plurality opinion) The Contract Disputes Act gives jurisdiction to the boards of contract appeals. The language giving authority is the following: (a) Appeal to agency board. A contractor, within 90 days from the date of receipt of a contracting officer's decision under section 7103 of this title, may appeal the decision to an agency board as provided in section 7105 of this title (41 USC 7104) The Tucker Act gives exclusive jurisdiction to the U.S. Court of Federal Claims to hear a claim based on an express or implied contract with the United States (28 U.S.C. 1491) U.S.C Gary Aircraft, 698 F.2d Weeks Marine, Inc. v. United States, 575 F.3d 1352, 1359 (Fed. Cir. 2009) F.D.I.C. v. Meyer, 510 U.S. 471, 484 (1994) In re Carrington Gardens Associates, 248 B.R. 752, 765 (Bankr. E.D. Va. 2000) In re Supreme Beef Processors, Inc., 468 F.3d 248, 254 (5th Cir. 2006) Amoco Prod. Co. v. Hodel, 815 F.2d 352, (5th Cir. 1987) Id U.S.C. 1491(a)(1) Spectrum Leasing Corp. v. United States, 764 F.2d 891, 895 (D.C. Cir. 1985) Id. (citing Van Drasek v. Lehman, 762 F.2d 1065, 1071, n. 10 (D.C.Cir.1985); McGuire v. United States, 550 F.3d 903, 911 (9th Cir. 2008) Supreme Beef, 468 F.3d at 253 (citing United States v. Nordic Vill. Inc., 503 U.S. 30, 34-35, (1992)) U.S.C. 106, Carrington, 248 B.R. at U.S.C. 106(a)(5) U.S.C U.S.C. 106(a) The list provided in 106(a)(1) is the following: Sections 105, 106, 107, 108, 303, 346, 362, 363, 364, 365, 366, 502, 503, 505, 506, 510, 522, 523, 524, 525, 542, 543, 544, 545, 546, 547, 548, 549, 550, 551, 552, 553, 722, 724, 726, 728, 744, 749, 764, 901, 922, 926, 928, 929, 944, 1107, 1141, 1142, 1143, 1146, 1201, 1203, 1205, 1206, 1227, 1231, 1301, 1303, 1305, and 1327 of this title (11 U.S.C. 106(a)(1)) The Federal Rules of Bankruptcy define a proof of claim as a written statement setting forth a creditor's claim (Fed. R. Bankr. P. 3001) U.S.C. 106(b) reads: A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose (11 U.S.C. 106(b)) U.S.C. 106(c) Congress, wanting this waiver of sovereign immunity to be as explicit as possible, added the language notwithstanding an assertion of sovereign immunity. to the beginning of this subsection. In re Supreme Beef Processors, Inc., 468 F.3d 248, 253 (5th Cir. 2006) Id. at 254.

11 67 Endnotes (cont d) 37 - Id. (citing United States v. Nordic Vill. Inc., 503 U.S. 30, 34 (1992)) Supreme Beef, 468 F.3d at Matter of Gary Aircraft Corp., 698 F.2d 775 (5th Cir. 1983) Id Id. at 785 (emphasis in original) Stern v. Marshall, 131 S. Ct. 2594, 2596 (2011) Amoco Prod. Co. v. Hodel, 815 F.2d 352, 368 (5th Cir. 1987)(vacated a district court opinion and remanded with instruction to transfer the case to the U.S. Federal Court of Claims) Gary Aircraft, 698 F.2d at Id In re MacLeod Company, Inc., 1991 WL *8 (6th Cir.1991) The U.S. Court of Appeals for the Federal Circuit has nationwide jurisdiction over the subject matter of government contracts ( Quality Tooling, Inc. v. United States, 47 F.3d 1569, 1571 (Fed. Cir. 1995) Id Id Id Id. at Id Id Presidential Gardens Assocs. v. U.S. ex rel. Sec'y of Hous. & Urban Dev., 175 F.3d 132, 142 (2d Cir. 1999) Id In re Univ. Med. Ctr., 973 F.2d 1065, 1089 (3d Cir. 1992) Id. at U.S.C. 362(a)(7) The court explained the automatic stay as a protection that gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits a debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy. In re Univ. Med. Ctr., 973 F.2d at 1074 (quoting In re Schwartz, 954 F.2d 569, 571 (9th Cir. 1992) (quoting H.R. Rep. No. 595, 95th Cong., 1st Sess. 340 (1978)) (emphasis in original) In re Univ. Med. Ctr., 973 F.2d at Id Id It is vital that to the court that the funds HHS attempted to withhold came from another transaction because if the money had come from the same transaction, HHS would have had a recoupment defense to the stay. The court defines recoupment as the setting up of a demand arising from the same transaction as the plaintiff's claim or cause of action, strictly for the purpose of abatement or reduction of such claim. Id. at 1089 (quoting 4 COLLIER ON BANKRUPTCY , at ) (emphasis added) In re Univ. Med. Ctr., 973 F.2d at Id Matter of Gary Aircraft Corp., 698 F.2d 775, 777 (5th Cir. 1983) Id. at Id Id. (citing Order of Railway Conductors v. Pitney, 326 U.S. 561 (1946) (holding the bankruptcy court should not decide which two rival unions had the right to conduct the debtor s trains); Smith v. Hoboken R.R. Warehouse & S.S. Connecting Co., 328 U.S. 123 (1946) (holding the bankruptcy court should have deferred to the Interstate Commerce Commission to decide if bankrupt railroad had forfeited its rights to leased tracks ); Nathanson v.

12 68 Endnotes (cont d) N. L. R. B., 344 U.S. 25 (1952) (holding that the bankruptcy court must defer to the NLRB for liquidation of unfair labor practice claim) Gary Aircraft, 698 F.2d at 783 (emphasis in original) Id Id. at Id. at 784 n In re MacLeod Company, Inc., 1991 WL *8 (6th Cir.1991) Id. (citing Gary Aircraft, 698 F.2d at 783-4) MacLeod, 1991 WL * Id Id Id Id Id. at * Id. (quoting Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1018 (1984)) MacLeod, 1991 WL * Id. 86- Id Id Id Id. (quoting S.Rep. No , 95 Cong., 2d Sess., reprinted in 1978 U.S. Code Cong. & Admin. News 5787, 5803) MacLeod, 1991 WL * Id. * Id McGuire v. United States, 550 F.3d 903 (9th Cir. 2008) U.S.C. 1346(a)(2) McGuire, 550 F.3d at Id. (quoting Hong Kong and Shanghai Banking Corp., Ltd. v. Simon (In re Simon), 153 F.3d 991, 996 (9th Cir.1998)) McGuire, 550 F.3d at Id McGuire v. United States, 97 Fed. Cl. 425, 428 (Fed. Cl. 2011) Id Id Id. (quoting Christianson v. Colt Indus. Op. Corp., 486 U.S. 800, 818, (1988)) The Third Circuit, in In re Univ. Med. Ctr., 973 F.2d 1065 (3rd Cir. 1992), and the Ninth Circuit, in McGuire v. United States, 550 F.3d 903 (9th Cir. 2008), both emphasized this factor In re MacLeod Company, Inc., 1991 WL *7 (6th Cir.1991); Quality Tooling, Inc. v. United States, 47 F.3d 1569, 1580 (Fed. Cir. 1995) McGuire, 550 F.3d at Matter of Gary Aircraft Corp., 698 F.2d 775, 777 (5th Cir. 1983); MacLeod, 1991 WL 96718; Quality Tooling,47 F.3d at Quality Tooling, 47 F.3d at See Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987) MacLeod, 1991 WL *7; Quality Tooling,47 F.3d at 1580 (Fed. Cir. 1995).

13 69 Endnotes (cont d) J. D. Hedin Const. Co. v. U. S., 408 F.2d 424, 431 (Ct. Cl. Mar. 14, 1969); Schlesinger v. U. S., 390 F.2d 702, (Ct. Cl. Feb. 16, 1968) See Cent. Virginia Cmty. Coll. v. Katz, 546 U.S. 356 (2006) McGuire v. United States, 550 F.3d 903, 914 (9th Cir. 2008) Quality Tooling, 47 F.3d at Matter of Gary Aircraft Corp., 698 F.2d 775, 784 n. 7 (5th Cir. 1983) Id Id See Id In re Univ. Med. Ctr., 973 F.2d 1065, 1073 (3d Cir. 1992) Id Id Id Id United States v. Maxwell, 157 F.3d 1099, 1100 (7th Cir. 1998) In re Univ. Med. Ctr., 973 F.2d at In re MacLeod Company, Inc., 1991 WL *1 (6th Cir.1991) Id Id. at * The scenario before us is one of the rare cases envisioned by Gary Aircraft, where jurisdiction need not be deferred. The counterclaim involved straightforward breach of contract analysis and the bankruptcy court specifically was concerned with the possibility of additional delay in resolving the contract question. Id Id U.S.C MacLeod., 1991 WL * Id Id Stern v. Marshall, 131 S. Ct. 2594, 2596 (2011) Id. at Id. at N. Pipeline Const. Co. v. Marathon Pipe Line Co., 458 U.S. 50 (1982) Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 69 (1989).